1. PW PW6 7AnalysisAnalysis Property Weekly
August 10, 2016
Property Weekly
August 10, 2016
Many ways to
own a homeSome developers are offering rent-to-own and other sales
schemes to attract buyers. Will others follow suit?
G
iven the soft market,
developers are look-
ing at all options to
attract a bigger pool
of buyers, particular ten-
ants who are planning to buy
their own home. A number
of attractive schemes such
as rent-to-own and “pay 10
per cent and move in” have
already started to surface in
the market.
“This tactic has been of-
fered by a number of devel-
opers, including Danube
in Dubai and Aldar in Abu
Dhabi,” says Craig Plumb,
Head of Research at JLL Mid-
dle East and North Africa
(Mena). The reason behind
this, he says, is that the sales
market has been slow and as
a result developers are look-
ing for new ways to attract
buyers and sell property.
Although not strictly
rent-to-own, there are some
similar schemes in the mar-
ket. “Developer Danube is
offering a 10 per cent de-
By Syed Ameen Kader
SpecialtoPW
posit followed by 15 per cent
in 60 days, with the balance
amount payable over 75
equal monthly instalments
of only 1 per cent each for its
Glitz project in Dubai Stu-
dio City,” says John Stevens,
Managing Director of Aste-
co. “Union Properties also
has a payment plan for phase
three of its Green Communi-
ty West development: 50 per
cent upon handover with the
remaining balance to be paid
over eight years.”
Another project, Dubai
South (formerly known as
Dubai World Central) has
also confirmed that rent-to-
own will be part of the incen-
tives attached The Villages
development. The project,
which is expected to have
as many as 20,000 homes,
will start its first handover
in 2019.
“It has also been reported
that the Falconcity of Won-
ders will have a version of
rent-to-own, [while] Al For-
Pictures: Gulf News Archives
san, the Abu Dhabi-based
sports resort and housing
complex, has come up with
a rent-to-buy offer targeting
Emiratis,” says Stevens.
Al Forsan Village in Abu
Dhabi is offering lease-to-
own as an option for its
completed villas and town
houses in Khalifa City A
area. The company says
this option was announced
to provide UAE nationals
with the best community
living experience at afford-
able prices.
“Our lease-to-own offer
has been well received by
the investors and they are
looking at buying these vil-
las for both personal use and
investment purposes,” says
Rashed Al Qubaisi, General
Manager of Al Forsan Inter-
national Sports Resort.
Deal for Emiratis
Under this plan, a villa at
Al Forsan Village could be
purchased and owned for as
low as Dh300,000 per year.
“We sold several units un-
der the lease-to-own scheme
at the Cityscape Abu Dhabi
show in April. Abu Dhabi
market is consolidating and
is currently attracting sever-
al residents from across the
UAE and the region,” says Al
Qubaisi.
However, Al Qubaisi says
that the lease-to-own offer is
solely aimed at UAE nation-
als as the project is not locat-
ed in a freehold area. Expats
are, however, free to rent a
villa in the project.
According to him, UAE
nationals are keenly pursu-
ing the lease-to-own offer.
“We wanted to complete the
project and ensure that the
amenities are functional so
that investors don’t have to
live on a construction site.
With the lease-to-own offer,
investors can now have the
opportunity to buy and start
living in the community
from day one.”
Dubai-based Falconcity
of Wonders, on the other
hand, has launched a “pay
10 per cent and move in”
scheme. The company re-
veals that it is an extended
payment plan for its ready
units.
“Under this new pay-
ment scheme, customers
only have to provide a down
payment of 10 per cent be-
fore they move in,” says Al-
harith Bin Salem Almoosa,
Vice-Chairman and Deputy
General Manager of Falcon-
city of Wonders. “This op-
tion is available to buyers of
our residential units such as
town houses, detached and
semi-attached villas.”
He says the bold move
has helped the company
make payments easier and
lighter for their clients. “It
also helped clients enjoy
moving into their new homes
faster, and this has given in-
vestors higher confidence in
our project,” says Almoosa.
“Clients like it because they
save on bank charges ”
Almoosa says Dubai is
typically a highly competi-
tive market just like London,
New York and other well
developed cities, prompt-
ing developers to offer in-
novative options to buyers.
“Dubai is not a sluggish
market and we introduced
this payment plan to meet
the requirements of the mar-
ket and different customers,
who need more time to com-
plete their payments and
want to move in to their new
homes [immediately].”
Considering the rising
cost of living and the grow-
ing demand for affordable
housing, industry experts
✚ Dubai South
says schemes such as rent-
to-own will garner more mo-
mentum with both develop-
ers and buyers.
“Tenants can try before
they buy where they get to
experience the community
before taking that first step
onto the property ladder,”
says Declan McNaughton,
Managing Director UAE of
Chestertons Mena. “The
reduced risk element and
the opportunity to save a
deposit are also important
factors, particularly against
a backdrop of increased liv-
ing costs.”
On the other hand, he
says developers have the op-
portunity to target a larger
market segment and gener-
ate more sales.
AlharithBinSalem
Almoosa
Vice-Chairman and
Deputy General Manager,
Falconcity of Wonders
CraigPlumb
Head of Research, JLL
Mena
DeclanMcNaughton
Managing Director —
UAE, Chestertons Mena
JohnStevens
Managing Director,
Asteco
RashedAlQubaisi
General Manager, Al
Forsan International
Sports Resort
The rent-to-own model
is not new and it has been
successfully used by devel-
opers in the last decade. “It
is undoubtedly a scheme
that is viewed as a positive
enhancement to re-energise
the market in its current lull
and re-establish investor
confidence.”
Win-win solution
The rent-to-own schemes
benefit both tenants and
developers. “There are ex-
patriates who have been in
the UAE for some years and
who are now looking to buy
a property, but are finding it
difficult due to the current
mortgage cap restrictions,”
explains McNaughton. “Po-
tential buyers also get to live
in the property and experi-
ence the local community
before actually settling in for
the long term.”
It is estimated that more
than 80 per cent of expatri-
ates in the UAE still rent
rather than buy, so many
consider this is a huge un-
tapped market for develop-
ers seeking to sell units.
In this set-up, the de-
veloper gets an option fee,
while it also provides an op-
portunity to sell at a higher
asking price because buyers
who cannot own a house in
any other way are usually
willing to pay based on the
assumption that the market
will improve. However, in-
dustry experts suggest that
it will ultimately be the price
and the amount of monthly
rental payments that will
make the scheme attractive.
“Earlier versions of these
schemes were not particu-
larly attractive to tenants
as the agreed purchase
prices were still too high,”
says Plumb.
Stevens warns that rent-
to-own schemes could be-
come complicated for both
the buyer and seller, with a
number of points to be taken
into consideration.
“For renters or buyers,
the risks are predominantly
concerned with the ability
to make the monthly pay-
ments, which could ulti-
mately result in forfeiting
the right to buy the prop-
erty,” says Stevens. “The
risk of failing to qualify for a
loan at the end of the rental
period is also something
that should be considered
before signing a contract,
which could result in losing
money or prolonged periods
of rental.”
The risks to the seller
include instances where the
renter fails to follow through
with the purchase. “There is
also the consideration that
there is no large lump sum
upfront; rather this is a long-
term scenario with sched-
uled rental payments in the
beginning,” Stevens says.
Another factor to consid-
er is the sales price, which is
usually locked in at the start
of the transaction process.
That means if the market is
on an upswing, house prices
may well increase and there
is no option to renegotiate,
leaving the developer with
no other option than to sell
at a lower price.
Conversely, house pric-
es may fall and the renter
may not end up following
through with the purchase,
leaving developers with
hard-to-shift assets in a
downturn period.
To minimise risks, Ste-
vens says it’s important for
buyers to ensure that they
get sound legal advice before
proceeding. For sellers it is
important to have a water-
tight contract in place.
“Developers will tend
to use rent-to-buy schemes
to move existing stock and
will, therefore, be aware of
the potential price deviation
risks,” he says.
Plumb adds: “If priced
correctly and with full offset
of all rents paid against pur-
chase price, this could be an
attractive proposition. Most
people would prefer to stay
where they are rather than to
move, so if they are given at-
tractive terms then some are
likely to go for it.” n
✚ Green Community
✚ Al Forsan Village